## Facts

- WCP Ltd aimed to become a wholly owned subsidiary of its parent company, Industrial Equity Limited (IEL).
- To achieve this, WCP proposed amendments to its articles of association permitting IEL to compel minority shareholders, including Mr. Gambotto, to sell their shares.
- The justification provided for the amendment was that full ownership would lower costs and tax liabilities.
- Mr. Gambotto, a minority shareholder, challenged the legitimacy of the constitutional change.

## Issues

1. Whether a company’s constitution can be lawfully amended to permit compulsory acquisition of minority shares by the majority.
2. Whether the amendment served a proper purpose directly advancing the company’s interests.
3. Whether the amendment unduly and unjustly harmed minority shareholders.

## Decision

- The High Court found that a constitutional amendment enabling compulsory acquisition of shares is lawful only if it serves a genuine and proper purpose required for the company.
- The Court determined that the cost and tax benefits cited largely advantaged IEL, not WCP itself, and did not provide adequate justification for forcing minority shareholders to sell their shares.
- The amendment was found to unjustly harm the minority, as it stripped Mr. Gambotto of ownership rights without sufficient company-focused rationale.
- The Court ruled that the majority bears the burden of establishing both a proper purpose and fairness in process and compensation when proposing such constitutional changes.

## Legal Principles

- Amendments to a company’s constitution allowing compulsory share acquisition must be for a proper purpose—specifically, a purpose necessary to advance the company’s interests, not just those of the majority.
- Such amendments must not cause unjust harm to minority shareholders; fairness in procedure and value is required.
- The majority must demonstrate both the necessity of the amendment for the company and that the process and consideration provided are just.
- Subsequent cases have affirmed that compulsory acquisitions can be valid if they are genuinely necessary for corporate benefit and are executed fairly.

## Conclusion

The High Court in Gambotto v WCP Ltd established stringent limits on constitutional amendments enabling compulsory acquisition of minority shares: changes must be necessary for legitimate company purposes and must not unjustly harm minority shareholders. The ruling offers significant protection to minority interests and continues to influence Australian corporate law.


Gambotto v WCP Ltd (1995) 127 ALR 417